WASHINGTON - In a bid to save financial markets and economy from further turmoil, the U.S. government agreed Tuesday to provide an $85 billion emergency loan to rescue the huge insurer AIG. The Federal Reserve said in a statement it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.
It also could "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said.
"The President supports the agreement announced this evening by the Federal Reserve," said White House spokesman Tony Fratto. "These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy."
Treasury Secretary Henry Paulson said the administration was working closely with the Fed, the Securities and Exchange Commission and other government regulators to "enhance the stability and orderliness of our financial markets and minimize the disruption to our economy."
"I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect taxpayers," Paulson said in a statement.
The Fed said in return for the loan, the government will receive a 79.9 percent equity stake in AIG.
Earlier, Fed chairman Bernanke and Paulson met with Sen. Christopher Dodd, D-Conn., Majority Leader Harry Reid, D-Nev., and House Republican leader John Boehner of Ohio, to brief them on the government's option.
"At the administration's request, I met this evening with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. They expressed the administration's views on the deepening economic turmoil and shared with us their latest proposals regarding AIG," Reid told reporters. "The Treasury and the Fed have promised to provide more details in the near future, which I believe must address the broader, underlying structural issues in the financial markets."
On Tuesday, shares of the insurance company swung violently as rumors of potential deals involving the government or private parties emerged and were dashed. By late Tuesday, its shares had closed down 20 percent — and another 45 percent after hours. Still, no deal emerged.
The problems at AIG stemmed from its insurance of mortgage-backed securities and other risky debt against default. If AIG couldn't make good on its promise to pay back soured debt, investors feared the consequences would pose a greater threat to the U.S. financial system than this week's collapse of the investment bank Lehman Brothers.
The worries were triggered after Moody's Investor Service and Standard and Poor's lowered AIG's credit ratings, forcing AIG to seek more money for collateral against its insurance contracts. Without that money, AIG would have defaulted on its obligations and the buyers of its insurance — such as banks and other financial companies — would have found themselves without protection against losses on the debt they hold.
"It might not just bring down other financial institutions in the U.S. It could bring down overseas financial institutions," said Timothy Canova, a professor of international economic law at Chapman University School of Law. "If Lehman Brother's failure could help trigger AIG's going down, who knows who AIG's failure could trigger next."
New York-based AIG operates an insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services. Those traditional insurance operations are considered healthy and the National Association of Insurance Commissioners said "they are solvent and have the capability to pay claims."
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"Some companies have served as a bedrock of the system... and one of them is AIG," he said. The company employs 6,000 people in New York City and another 2,500 elsewhere in the state. AIG has 116,000 employees worldwide.
-------------------- Don't envy the happiness of those who live in a fool's paradise.
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I have a friend that has worked at Indy Mac for quite a few years.
He was sweating it, but it looks like some other company is taking over his part of Indy Mac and most of his department will go and probably make more money.
Not sure what each company is doing with there contracts, but someone has to pick them up and they will most likely need more employees to service them, that's a little upside to all the downside.
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quote:Originally posted by Machiavelli: Yah, they are the biggest insurance company in the world... u didn't know that Glass?
But they are not only insurance. They have vast holdings throughout the world in just about anything financial and own lots of other sorts of businesses.
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Somehow i should feel bad about it for the employee's sake, but many years ago a real close friend had a son that got injured badly.
The business was insured by AIG and they fought this company for 4 years and AIG had deep pockets and big gun lawyers, none whom showed any compassion for my friends son.
In the end my friend won one of the bigger settlements for his type of injury. Somehow this lawsuit and the way it was handled left a bad taste in my mouth about AIG, i was involved with him since the start of the lawsuit.
I have not asked my friend about how he feels about AIG's problems but i got a hunch what he might think.
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quote:Originally posted by Machiavelli: as long as it saves my friends job at AIG...
LOL...I really don't think that your friends job is the reason that the Fed is going to bail them out Mach...
I never said it was... so stop putting words in my mouth... I said as long as it saves my friends' job... please show me where i said in any of the above posts: "As long as the Fed is doing it to personally save my friend, Tsilya's job, and not to prevent another Wall Street meltdown of 504 points".
I guess I'll say it in more simpler language for you to comprehend: As long as the results of a loan from the Gov't is that my friend does not lose her job at AIG.
Better? Understand more clearly? yes? Good... now go back to your retirement...
-------------------- Let the world change you... And you can change the world.
"AIG is gonna be trading nuts tommorow....that's for damn sure!!!
The AIG thread at "The Lion" is pretty active."
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Tomorrow, did you watch it today? How could it be more crazy and did you see how many shares were traded today.
Looks like a penny that's gone nuts.
The stock was at $15 a few days ago....and had 3 days in a row of double digit percent declines...the obviously are tons of shorts...they started to cover on tuesday....but with news of the bail out...the short covering will be crazy!
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quote:Originally posted by Machiavelli: Yah, they are the biggest insurance company in the world... u didn't know that Glass?
But they are not only insurance. They have vast holdings throughout the world in just about anything financial and own lots of other sorts of businesses.
Yes, I know Bgeesus... as i stated my friend works for them in the NYC office... so I am quite aware of what they are involved in... just that "Insurance" is their main business... so I simplify it to "insurance" then naming every single business they are involved in... Insurance is where they dominate or did... it is obvious that Insurance companies of that size participate in other financial services but they are still primarily above everything else an "insurance" company.... hope this clears things up....
-------------------- Let the world change you... And you can change the world.
quote:Originally posted by IWISHIHAD: So Ace of Spades are you going to buy a couple of million shares tomorrow?
Like they say win big or sleep in the streets.
No, Im going to school now, and tommorow I have a humanities test. I've been studying all night and in between surfing the net and stuff.
I just swing trade or posistion trade now. I looking to buy Apple and some solar stocks soon that are becomming super cheap! I'll see what the market and the financials do in the comming days/weeks....but so far many stocks are starting to look cheap.
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quote:Originally posted by Machiavelli: as long as it saves my friends job at AIG...
LOL...I really don't think that your friends job is the reason that the Fed is going to bail them out Mach...
I never said it was... so stop putting words in my mouth... I said as long as it saves my friends' job... please show me where i said in any of the above posts: "As long as the Fed is doing it to personally save my friend, Tsilya's job, and not to prevent another Wall Street meltdown of 504 points".
I guess I'll say it in more simpler language for you to comprehend: As long as the results of a loan from the Gov't is that my friend does not lose her job at AIG.
Better? Understand more clearly? yes? Good... now go back to your retirement...
I was being facetious you little arrogant, numb nutted, disrespectful, adolescent twit...get it...good...now go back to your playpen...
quote:Originally posted by retiredat49: Hey Tex...Hope all is well.
shoot, I'm fine. Just sitting here in my room, using the laptop you guys bought me...
...wondering what it would take to actually get some teeth into market regulation. It should be obvious to all that a thin line exists between "business as usual" and pure-dee chaos.
-------------------- Nashoba Holba Chepulechi Adventures in microcapitalism...
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quote:Originally posted by Machiavelli: as long as it saves my friends job at AIG...
LOL...I really don't think that your friends job is the reason that the Fed is going to bail them out Mach...
I never said it was... so stop putting words in my mouth... I said as long as it saves my friends' job... please show me where i said in any of the above posts: "As long as the Fed is doing it to personally save my friend, Tsilya's job, and not to prevent another Wall Street meltdown of 504 points".
I guess I'll say it in more simpler language for you to comprehend: As long as the results of a loan from the Gov't is that my friend does not lose her job at AIG.
Better? Understand more clearly? yes? Good... now go back to your retirement...
I was being facetious you little arrogant, numb nutted, disrespectful, adolescent twit...get it...good...now go back to your playpen...
Nothing to be respectful about you... you have been on my case from day 1... and if you do not like me posting or replying to your comments then don't comment to me, simple as that... now go back to your Assistance Living bedroom and waste away... you old geezer twat...
-------------------- Let the world change you... And you can change the world.
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I'll say this much Retired... we avoid each other and not comment to each other we avoid trouble... no use in replying to each other since it's obvious there is no lost love so to speak between us... and I'm saying this regardless of whose at fault... if not then at least I can't say I tried...
Anyways anyone here profit from AIG's wild trading in the Market?... I was going to put a buy order last night for this morning but decided against it... thank god... i did profit on a different stock though.... bought it at the dip and then it recovered... sold it out 2 minutes before end of Market..
-------------------- Let the world change you... And you can change the world.
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Lockman, you would lie to your own self, not because you can't recognize the truth, but because you have absolutely no respect for anyone, including your self. (Of course, where you are concerned, you have well earned that total lack of respect.)
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quote:Originally posted by Lockman: I have respect for you, I just wish you'd stop with the dumocrat or bust crap and realize that there are other valid points of view.
But i realize this may be to much to ask.
I tell you what, you stop the narrow minded pure and absolute republican drivel and I'll give serious consideration to what you say.
Otherwise.....
Oh, and that claim of respecting me or anyone else that doesn't preach RNC talking points is a lie.
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